The traditional billable-hour fee model in the legal industry is facing significant challenges as artificial intelligence (AI) reshapes how legal services are delivered and priced. Tom Hambrett, chief legal officer at UK fintech company Revolut, highlighted this shift in May when he announced plans to overhaul panel firm arrangements, prompting widespread discussion across the legal sector.
For years, companies have relied on panels—selected groups of external law firms contracted to provide ongoing legal advice under agreed fee terms—to manage costs and maintain quality. These arrangements typically guarantee firms a steady flow of work in exchange for adhering to predetermined pricing structures. However, the advent of AI is putting pressure on this model by enabling law firms to perform tasks more efficiently, reducing the number of billable hours required.
Major financial institutions, including Goldman Sachs, Morgan Stanley, and Citigroup, have reportedly instructed their legal service providers to pass on cost savings derived from AI technology. This shift underlines a growing expectation that clients should pay less when fewer lawyer hours are needed on a matter due to AI-driven efficiencies.
At Revolut, this evolving dynamic means that law firms risk losing their long-term panel positions unless they deliver superior quality and value. Hambrett notes that the company’s buying power has shifted as a result. Smaller, tech-enabled law firms are capitalizing on the disruption. For instance, Three Points Law, founded in 2025 by two former Mishcon de Reya partners, leverages AI technology rather than a large team of associates. The boutique boasts high-profile clients such as English footballer Marcus Rashford and Formula 1 driver Alex Albon.
Simon Leaf, founder of Three Points Law, argues that many traditional firms are struggling because their business models remain tied to outdated work practices. He says the industry’s longtime model, which effectively has clients pay for junior lawyers to train on the job, is becoming less viable in the AI era. Similar technology-driven firms have emerged globally, including Norm Law in the United States, led by former Sidley Austin senior partner Mike Schmidtberger.
Despite AI’s growing role, adoption and adaptation remain uneven. Maui Gevero, head of the legal advisory team at Persuit, a platform facilitating bids from law firms, notes a stalemate: clients seek clearer guidance on AI-related pricing, yet law firms defer to clients for direction. Alternative fee arrangements (AFAs) now account for about 80 percent of work posted on Persuit, reflecting a broader industry trend away from billing strictly by the hour.
Hourly billing persists, however, with some partners charging rates as high as $4,000 per hour, and standard rates in the “low $3,000s” for US firms, closely mirrored by UK firms. Gevero suggests these rate increases may reflect law firms capitalizing on limited market opportunities before AI adoption reshapes the landscape further.
Industry veterans such as Chris McCloy, global head of outside counsel management at IBM, believe that the pressure to adopt AFAs will accelerate law firms’ investment in AI. McCloy points out that the billable-hour model discourages efficient use of AI, whereas outcome-based fee structures incentivize it.
Hambrett also seeks to curb questionable billing practices, recounting an instance where a US law firm billed Revolut for a casual coffee meeting between an associate and a client contact. He emphasizes the importance of tangible value from partnerships between law firms and AI providers, stating that without clear benefits in advice or application, such alliances hold little worth for clients.
As AI continues to influence the legal sector, law firms face mounting pressure to rethink traditional fee arrangements, deliver greater efficiency, and demonstrate measurable value to retain client loyalty in a rapidly evolving market.